Bitcoin fans flock to the futures market


Investors are betting the first US-listed Bitcoin exchange-traded fund is about to get the green light.

Securities regulators could rule as early as next week on up to four ETF applications that will buy bitcoin futures rather than the cryptocurrency itself. Over the next two weeks, the Securities and Exchange Commission may either approve, reject or delay the ProShares, Valkyrie Investments, Invesco and VanEck proposals submitted in August.

SEC Chairman Gary Gensler said in August that he would be receptive to a futures ETF. He repeated it two weeks ago at an asset management conference in Washington, DC.

In recent days, the annualized premium of CME bitcoin futures prices to the spot value of bitcoin was 15%, compared to around 7.7% on average over the first nine months of the year. Traders can realize these returns by buying bitcoin for cash and short selling the futures contract, as the two prices will converge in the future, said Noelle Acheson, head of market analysis at crypto lender Genesis Global Trading Inc. It attributes the difference in the premium to the institutions. rushing to buy bitcoin futures pending ETF approval.

The Chicago Mercantile Exchange plans this month to raise the cap on the number of bitcoin futures that a single company can hold. The move could help make room for a new big player, such as an ETF, analysts said. Some of the asset managers involved in the efforts so far have answered several rounds of questions from the regulator about how the funds work, people familiar with the matter said.

“We’re about to see if the deposits go through the SEC,” said Giang Bui, head of U.S. exchange traded products at Nasdaq, who is working with Valkyrie to create a bitcoin futures ETF. “We are all very optimistic.”

Expectations that the SEC will approve a bitcoin ETF contributed to the roughly 25% rise in bitcoin this month, analysts said.


What will SEC approval of a bitcoin ETF mean for the crypto market and bitcoin adoption? Join the conversation below.

Over the past eight years, the agency has rejected or delayed decisions on numerous proposals for funds that directly hold bitcoin. Mr Gensler cited the agency’s lack of oversight over crypto trading platforms that are not registered as exchanges in the United States, which leaves regulators unaware of where bitcoin is coming from and if prices are manipulated. This makes investors vulnerable to potential fraud and manipulation in commerce, the agency said.

Surveillance is not an issue with Bitcoin futures contracts, which allow traders to bet on the rise or fall in the price of the cryptocurrency. Futures contracts trade separately from the underlying asset from which they are derived on exchanges, like the CME, which are supervised by the SEC.

“It’s not what everyone is looking for in terms of a bitcoin ETF. But it is a step in the right direction.

– Armando Aguilar of Fundstrat Global Advisors

But ETFs based on futures contracts are vulnerable to divergences in the prices of the futures contracts and the underlying assets they track, in this case bitcoin, which is notoriously volatile.

ETFs can also lag bitcoin’s performance if it continues to rise. Longer-term bitcoin futures tend to trade above short-term contracts, a market dynamic known as contango. This can result in lower returns for the funds as they pay to renew monthly contracts.

“A lot of people really don’t understand how futures work,” Kathleen Moriarty, ETF lawyer, told retail investors.

Investment returns on the funds will also be affected by annual fund fees and potentially by some of the funds’ plans to hold other assets as well, such as stocks and crypto-related funds.

Despite this, analysts say there will likely be a ready market for a futures ETF thanks to institutional investors looking to buy crypto assets. A recent survey of around 400 U.S. institutional investors by Fidelity Digital Assets found that 18% had invested in digital assets through an investment product this year. Almost a third said they prefer investment products over direct crypto investments for any future investment.

Asset managers are lining up to meet demand. After the first batch of funds to review, the SEC is expected to weigh on three more bitcoin futures ETFs in November. And analysts expect to see more. On Wednesday alone, Cathie Wood’s ARK Investment Management announced plans to launch its own bitcoin futures ETF in partnership with European crypto asset manager 21Shares.

“It’s not what everyone is looking for in terms of a bitcoin ETF,” said Armando Aguilar, vice president of digital asset strategy at Fundstrat Global Advisors, adding that he thought some investors would prefer an ETF. with direct exposure to bitcoin. “But it’s a step in the right direction.”

Bitcoin, Dogecoin, Tether: the cryptocurrency markets

Write to Michael Wursthorn at [email protected] and Caitlin Ostroff at [email protected]

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